Gold and silver prices continue their descent; silver prices are even plummeting very precipitately because of the new margin limitations on silver as announced by CME. The news keep on covering the bin Laden news as this news, from the commodities market perspective, has affected the emotions of many traders.
Let’s see what is up a head in the precious metal market for today, May 3rd:
Gold and silver prices – May
Gold prices started off May at 1,557$ a very moderate rise of 0.04%, while silver price reached 46.08$ a fall of 5.18%.
During April, silver price increased by 28.8%, while gold price increased by 8.92%.
The gold to silver ratio: As of yesterday, May 2nd the ratio between gold and silver prices rose to 33.79. The ratio could be interpreted as one troy ounce (31.1 gram) of gold is worth 33.79 troy ounces of silver.
The gold to silver ratio has been stable in the last week as seen in the chart above and ranged between 32 and 34.
Silver Margins rose for second time within a week
CME Group announced that it will raise the margin requirements on silver trading. This announcement comes after CME already announced of a margin increase during last week. Due to the recent announcement, the minimum amount will be needed to deposit will be 16,200$ per contract, an increase of 11.6% from the pervious amount needed.
The margins on Silver contracts rose very rapidly during the year along with the rise in silver prices. Only a year earlier the margin on silver contracts stood at 4,250$ per contract.
This change not only immediately affected silver prices as we currently see them plunge, but also might have some effects in stabilizing this commodity’s price in the long term.
This change affected as seen in the chart above on the gold to silver ratio during last week.
Bin Laden was killed by US forces
The news on the killing of known terrorist and head of al-Qaida – Osama Bin Laden, as reported by US president – Barack Obama will continue to be among the major news items during week.
In regards to major commodities, such as gold and silver, this news might have affected their prices yesterday and today but even if this is the case, I think this effect won’t last long.
Morgan Stanley buys commodities
According to Bloomberg, Morgan Stanley is still going long on major commodities, even though Goldman Sachs advised a few weeks back to its clients to start selling the major commodities, because they are over priced.
If traders and money managers continued to bet on gold during April, this might explain the rising prices in these commodities during that month, even though the supply and demand forces of these commodities aren’t linked as they used to their traded prices.
Update from Middle East
Following the attack on Gaddafi’s compound by NATO aircrafts, in which Gaddafi’s youngest son and three of his grandsons were killed, the assault of NATO air force is only intensifies.
Current Gold and Silver prices
U.S. markets show major precious metals prices are traded down:
The current gold price, short term futures (June 2011 delivery) is traded at 1,540.1 USD / t oz. a 17$ drop or 1.09%, as of 12.48*.
Current silver price, short term futures is at 43.67 USD / t oz – a 2.414 decline or 5.24%, as of 12.48*.
The current ratio of gold to silver prices is at 35.26.
Gold and silver prices Outlook and Analysis:
The current freefall in silver prices is probably related to the margin rise by CME. The gold and silver prices fall might also be related to the news about bin Laden’s demise.
This correction in silver price because of the margin increase will probably have a strong lasting effect in the days and weeks to come, however I speculate that traders will continue to bet on silver and gold so these commodities prices might make a comeback but will not increase at the same rates they did during April.
Here is a reminder of the top events and reports that are planed for today (all times GMT):
5.30 – Reserve Bank of Australia – rate statements
15.30 – EIA report about Crude oil inventories
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